U.S. investment is shifting away from residential real estate and toward information-processing equipment, according to Federal Reserve Bank of San Francisco Vice President Adam Shapiro.
In a LinkedIn post, Shapiro noted that inflation-adjusted spending on information-processing equipment, which includes data centers and computer hardware, now exceeds residential investment. He described the AI investment boom as "massive."
Data from the Bureau of Economic Analysis shows that real private residential fixed investment was $748 billion in the second quarter, while information-processing equipment reached $752 billion in the same period.
Shapiro observed that residential investment is more sensitive to borrowing costs, whereas AI investment has shown less sensitivity to interest rates.
The article highlights the rapid expansion of the AI investment cycle. Data-center capital expenditures are projected to rise from 1.4% of GDP in 2025 to 3.1% in 2027, an increase of roughly 0.85 percentage points per year.
Torsten Slok, Partner and Chief Economist at Apollo Global Management, stated that the AI cycle is building at close to twice the pace of the housing boom at its fastest.
Capital expenditures from major technology companies are also on the rise. Hyperscaler capital expenditures are expected to reach about $916 billion over the next 12 months and nearly $1.2 trillion the following year.
S&P Global estimated that capital expenditures from Alphabet, Amazon.com, Microsoft, Meta Platforms, Oracle, and Space Exploration Technologies will exceed $1.3 trillion in 2027. S&P Global Ratings reported that all six hyperscalers are expected to generate negative free operating cash flow in 2026 and 2027, with recovery not projected until 2029.
